East African countries face a budget deficit of $6 billion in the next financial year amid narrowing funding options due to the region’s high debt levels, limited revenue sources and unpredictability of key donors.

Kenya, Tanzania, Uganda and Rwanda face $3.4 billion, $2.2 billion, $311 million and $261 million respectively in budget deficits. The total deficit equals about 15 per cent of the region’s $40 billion budget. The four countries have budgets of $20 billion, $12 billion, $5.5 billion and $2.2 billion respectively.

The huge deficit, coupled with weak economic growth outlooks and the historical underperformance of tax authorities in the region, has raised concerns over its ability to implement key infrastructure projects in the next financial year.

Kenya is pegging its hopes on improved economic performance and efficient tax collection to finance its budget. But there is already concern that the country may not grow as fast as was predicted due to rising insecurity, which has affected tourism — a key foreign exchange earner for the country.

The agricultural sector, another key driver of the economy, is also underperforming due to the vagaries of the weather. Tea prices have hit rock bottom — a result of oversupply in the international market.

In the next financial year, the Kenya Revenue Authority is expected to collect Ksh1.18 trillion ($13.56 billion) to finance 83.6 per cent of the budget. Last year, the authority collected Ksh800 billion ($9.2 billion) against a target of Ksh881 billion ($10.1 billion).

In Tanzania, the revenue authority collected only 82.3 per cent of the $4.17 billion it had projected to net in the first nine months of the 2013/14 fiscal year.

Experts are already concerned since governments, when unable to fully cover their deficits, will normally slash capital spending so as to free up cash for recurrent expenditure and miscellaneous demands.

“We are concerned that development expenditure is the biggest casualty of fiscal deficits in Tanzania. This is likely to slow down the economic growth that has been fairly strong in the recent past,” said analysts at Stralink Africa, a financial research firm.

In Kenya, John Mbadi, a member of the Parliamentary Budget and Appropriations Committee, said it will be difficult for the country to fully meet its development expenditure.

“We are banking on the economy to perform better in order for us to meet the revenue targets, but the rising insecurity is messing up business and limiting investment opportunities,” said Mr Mbadi.

However, Finance Cabinet Minister Henry Rotich has stressed that the government’s borrowing plans remain anchored in the medium-term debt management strategy, which aims at ensuring public debt sustainability.

Source: The East African

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